(CNS Business): The legislation that is providing for the creation of the registration of master funds does not meet any OECD or other current regulatory requirements. According to the Law Society president, the OECD is scheduled to visit the Cayman Islands next year, which is “of fundamental importance to the future wellbeing of these islands”. Charles Jennings said that if Cayman were to be placed on a black or grey list, the damage to Cayman’s fund industry could be fatal. In the Legislative Assembly as the bill was passed, Premier McKeeva Bush had insisted that the regulation would help to improve Cayman’s international standing, which had improved significantly after his government managed to remove Cayman from the black list, which the previous PPM government had got the country on because it was not paying attention.

Prior to amendments to the mutual fund law, which passed Monday, requiring master funds to pay an annual $2,500 fee per fund and be registered with the Cayman Islands Monetary Authority, Jennings wrote a series of letters to the Financial Services Secretariat, in which he said that implementing the master fund registration regime could divert attention away from what the Law Society terms “the major issue” facing the industry, the OECD Peer 1 Review Report and the visit from the OECD scheduled to take place next year. Jennings maintained that to claim that master fund registration meets any OECD or other current regulatory requirement was wrong.

Jennings wrote: “The Peer 1 Review Report criticises this jurisdiction in relation to unregulated entities that fail to maintain adequate ownership and identity on the investors in the fund. We agree with the Financial Services Council that the registration of master funds does not meet this issue.” The letter went on to say: “The OECD Report/visit is of fundamental importance to the future wellbeing of these islands. If Cayman were to be placed on a black or grey list, there would be significant damage to our industry; perhaps fatal damage.”    

Legal professionals in the jurisdiction also say that the changes to the law will serve to provide Cayman’s accounting firms with a welcome new income-flow.

Local audit firms are required to sign off on regulated funds, and at $5,000 a time for around 4,000 newly registered funds that is a sizeable sum of around $20,000,000.

Jennings asked whether government or CIMA had received any assurances from the local audit firms as to the cost of providing this additional sign off.

“Our principal concern is the overall increase in cost to clients of establishing a master/feeder structure in Cayman … While this may provide additional professional fees for Cayman lawyers and accountants, the combined effect will put Cayman at a competitive disadvantage to rival domiciles,” Jennings wrote in a letter to Bush dated 9 November.

In addition, changing the law to reflect these amendments was far too drastic and put too much pressure on the industry to comply, and government could have obtained greater and more sustained revenue far more easily, according to Jennings.

In his letters, Jennings outlined the Law Society’s recommendations for alternative ways of raising revenues for government, such as slightly increasing fees for existing registered mutual funds and paying small filing fees to CIMA similar to the fees currently paid to the Registrar of Companies. In that way, much needed revenues for government coffers would be available at the stroke of a pen and without any need for legislation, Jennings stated.

Following the passing of the amendments to the law, Darren Stainrod, Chairman of the Cayman Islands Fund Administrators Association, said, “There are some small incremental costs to our clients but there are some positives within the changes such as capturing the data for Master Funds. The industry would have liked to have seen a longer implementation timeframe than 90 days for registration of 4000 entities; however it is encouraging to see that CIMA will be expanded to deal with the additional workload.”

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